Tisco Securities predicts that hotel stocks will face difficulties in the second half of 2024 but are poised for a strong resurgence in 2025. Despite a solid performance in the second quarter of 2024, with revenue surpassing projections, these stocks fell short of expectations in terms of core profit.
Hotel stocks exceeded the analyst’s expectation with a net profit that was 21% higher, primarily driven by profits from revaluation and exchange rates. However, core profit fell short of the projection by 11%, despite total revenue exceeding expectations by 7%.
The outcome was influenced by losses from unrealized exchange rates amounting to THB 680 million stemming from MINT’s loans and lease liabilities. Nevertheless, MINT, CENTEL, and ERW all reported core profits that exceeded the analyst’s forecasts. On the contrary, AWC experienced a notably lower core profit than expected, primarily due to lower-than-anticipated revenue.
In the second quarter of 2024, the net profit of hotel stocks remained stable compared to the previous year, impacted by extraordinary items. Excluding these items, the core profit of hotel stocks would have increased by 16% year-on-year, primarily driven by improved profitability in contrast to the underwhelming performance of food, retail, and office stocks. Nearly every segment within the hotel industry displayed strong year-on-year revenue growth, with hotels in Europe, Latin America, and Thailand notably outperforming, while establishments in Maldives and Australia faced challenges due to sluggish demand.
Meanwhile, the food sector experienced disappointment with low single-digit growth in same-store sales, with companies prioritizing the closure of unprofitable branches.
Despite tourist numbers recovering to 90% of the 2019 level, hotel companies did not show a parallel recovery. In the short term, the analyst foresees challenges for the hotel industry, such as issues surrounding:
1) Hotel renovations impacting profits for ERW and CENTEL in 2H24;
2) Concerns regarding debt repayment for MINT and CAPEX for market positioning adjustments, alongside renovation activities in the company’s European branches affecting market sentiment on debt outlook;
3) AWC’s underwhelming performance in Bangkok, albeit a potential turnaround hinging on the company’s strategic decisions; and
4) Concerns over the food business amid sluggish consumption.
Diminished confidence in these stocks resulted from the absence of beneficiaries from the entertainment complex.
For 2025, Tisco Securities anticipates that RevPAR will show stronger growth than usual. This projection is based on the completion of hotel renovations, strategic adjustments in feeder markets, and reduced flight costs. While food operations are predicted to pose challenges for MINT and CENTEL in the long term, the analyst prefers companies with a higher proportion of their portfolio in the hotel business.
The strategic concentration of ERW on Hop Inn and AWC’s targeting of higher-quality clientele is projected to assist them in sustaining their strong growth trajectory. Consequently, the analyst recommends a ‘BUY’ rating for AWC and ERW, with target prices set at THB 5.80 and THB 6.50 per share, respectively.
